(The Center Square) — New York’s financial situation has worsened over the past year, according to a new report, which calls on state leaders to boost reserve funds to cushion against economic downturns.
The report from state Comptroller Tom DiNapoli says increased spending coupled with the expectation of lower tax collections will create budget gaps over the next several years that could reach more than $36 billion.
The deteriorating fiscal outlook is also driven by declines in revenue from a weaker economic forecast and stock market volatility, DiNapoli noted.
“The state’s fiscal outlook has changed considerably over the past year, and significant economic and fiscal risks could further upend the state’s finances,” he said in a statement. “The Governor and the Legislature prudently increased New York’s reserve funds, but that cannot replace fiscal discipline or be relied upon to plug recurring budget gaps.”
DiNapoli’s report says gaps in spending and revenue are growing, with deficits rising to $9.1 billion next year and $13.9 billion in the following year. He said the projected budget gaps are “well above” typical forecasted levels over the previous 15 years.
Meanwhile, tax collections are becoming more “volatile” as New York leaders have moved in recent years to set higher taxes on the state’s wealthiest residents, a small subset of taxpayers.
DiNapoli said relying heavily on the wealthiest people to pay taxes “makes the state’s coffers vulnerable to stock market declines given many of the wealthiest filers have a much higher share of income drawn from capital gains, dividends and interest.”
A 2022 report on taxpayer migration by DiNapoli’s office showed from 2015 to 2019, a net average of 28,700 personal income taxpayers moved out of New York annually, many of whom were high-income residents. DiNapoli said continuing this trend would hurt the state’s income tax collections.
DiNapoli called on Gov. Kathy Hochul to transfer at least $13.2 billion into the state’s rainy day reserves, on a monthly basis, over the course of the fiscal year. That would boost the reserves to $19.5 billion, 17% of the projected general fund. Absent such action, Hochul should develop criteria for using funds earmarked for “economic uncertainties.”
“While there is no quick fix, a proactive approach by state leaders to align recurring revenues with recurring spending could help preserve the economic competitiveness of our state and avoid cuts to critical programs New Yorkers rely on,” DiNapoli said.
Hochul has touted that New York has squirreled away more than $19 billion in surplus revenue in its rainy day funds in recent years, which gives the state — and taxpayers — a large cushion against a possible recession or economic downturn.
“I feel good about where we are,” the Democrat told reporters at a Monday event. “But I’m always cognizant of the fact that these are the taxpayers’ dollars and it’s my responsibility to make sure we’re fiscally conservative when it comes to protecting their resources.”
